VAT Ruling No. 066-97

October 30, 1997 VAT RULING NO. 066-97 Sec. 102 (a); 000; 066-97 NNA Philippines Company, Inc. Unit 1814 Herrera Tower 98 Herrera corner Valero Streets Salcedo Village, Makati City Attention: Ms . Miriam E . Lecciones Executive Assistant Gentlemen : This refers to your faxed letter dated September 4, 1997 requesting for a ruling exempting your business activities from VAT registration and coverage. It is represented that your company is a domestic corporation formed for the primary purpose of engaging and carrying on "general business of providing consulting and advisory services in the fields of finance, management, marketing, other types of business concerns, and in connection therewith, to assist corporations, entrepreneurs, investors, more particularly Japanese nationals, in determining and scouting for business prospects in the Philippines, preparing feasibility studies, project proposals, research, providing translation services and preparing original and translated references, research papers, brochures and the like"; that in order to meet the need to transcend the language and cultural barrier between two nationals prospectively transacting business, operations will consist mainly, at the outset, of the translation into Nippongo of selected business information materials sourced from periodicals, the collation thereof into a compilation and/or a digest, and the selling and delivery thereof to Japanese clients; and that for the first twelve months of operations, the projected gross receipts is P550,000.00 or over. In reply, please be informed that based on the primary purpose upon which your company was organized, specifically that of providing consulting and advisory services, you are subject to the value-added tax as a seller of services pursuant to Section 102(a) of the Tax Code, as amended, pertinent portions thereof state SEC. 102. Value-added tax on sale of services and use or lease of properties . (a) Rate and base of tax . There shall be levied assessed and collected, a value-added tax equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties. "The phrase 'sale or exchange of services' means the performance of all kinds of services in the Philippines for a fee, remuneration or consideration, including those performed or rendered by construction and service contractors; . . . and similar services regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties. . . ." xxx xxx xxx "The term 'gross receipts' means the total amount of money or its equivalent representing the contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied with the services and deposits and advance payments actually and constructively received during the taxable quarter for the services performed for another person, excluding the value-added tax." Such being the case and since your expected gross receipts is more than the threshold of P550,000.00, you are hereby advised to register as a VAT-taxpayer pursuant to Sec. 107 of the Tax Code, as amended. With respect to your initial daily activity consisting of translation of selected materials from periodicals. the collation thereof into a compilation or digest and their delivery to Japanese clients, the same is considered part of your consultancy and advisory activities, hence, the fees you received therefrom shall constitute "amounts charged for materials supplied with the services" which form part of the gross receipts subject to value-added tax. In view of the foregoing, your request for exemption from VAT registration and coverage is hereby denied for lack of legal basis. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue